FCA v2.0 Authorisations - Laying the foundations: the 'when'

  • Posted on: 18 March 2022
  • Written by: James Borley

In our first article in our new series which is tracking developments at the FCA and how it is affecting authorisations and regulatory transactions, we looked at the conditions of authorisation and what the FCA is looking at as part of its assessment. In this second article, we focus on the mechanics a little more. In particular, due to the FCA’s increased scrutiny, a better understanding of how long the process might take and what factors might currently affect this.

Preparation, preparation, preparation

Of course, to stand the best chance of success your business needs to be in a good state of readiness and reflected as such within the application. If your business has all of the information to hand, it should (working with an experienced consultant) take between six and eight weeks to complete the application ready for submission to the FCA. However, more time will need to be spent if your firm does not have all of the materials ready, or elements of the application require further attention. Once submitted to the FCA, the length of time the regulator might take to determine the application will depend on a number of factors, including the ‘completeness’ of the application and the statutory deadline that the FCA will be working to.

Statutory deadlines

Depending on the ‘permission’ for which a firm is applying, the FCA will have a set amount of time in which to ‘determine’ an application. These are commonly, and probably erroneously, referred to as ‘Services Level Agreements’ (SLAs) and are set out as below;

  • Financial Services and Markets Act (FSMA): determination within six months of receipt of a ‘complete’ application (or within six months of it becoming complete) or within 12 months of an ‘incomplete'
  • Payment Services Regulations (PSRs)/ EMRs (and insurance distribution): determination within three months of receipt of a ‘complete’ application (or within three months of it becoming complete) or within 12 months of an  ‘incomplete' application

What happens if the deadline is breached by the FCA?

Interestingly, it’s only with reference to applications for variations of permission, that this is clearly spelt out, but applies equally to new firm authorisations. SUP 6.3.38A G states “If the [FCA] fails to determine an application within the time period specified in section 55V of the Act, this does not mean that the application is deemed to be granted.” So, if it is not deemed granted, then is it deemed to be refused? Well, no, as there are separate provisions in FSMA for refusing an application (more of which later). Rather, the applicant firm has the right to take the FCA to judicial review, essentially for failing to adhere to the process (i.e. rendering a decision before the statutory deadline) set out in legislation. However, taking the FCA to judicial review is likely to be expensive and will not in itself provide a decision on the application in hand. As such, it would seem to be a largely ineffectual remedy.

That said, and notwithstanding the ‘more robust gateway’, the desire not to breach the statutory deadline has always been perceived to be one of the drivers for the FCA pushing back on applications – if they can’t approve it within the timeframe, then they will have to refuse it. That said, the FCA has previously chosen itself to breach the statutory deadline in instances where, for example, an applicant firm is in the final stages of securing an account with a credit institution. However, the new robust gateway is also making such accommodation less prevalent.

Case officer allocation times

Here we are less able to draw on hard data published by the FCA, given there is no legislative requirement on the FCA to do so. Indeed, for many of our clients the length of time it takes the FCA to allocate a case officer is currently the most antagonising aspect of the process as, depending on the type (sector) of application being submitted, the ‘wait time’ for a case officer can be several months. The main issue here being that the FCA will insist on any application demonstrating that the firm is ‘ready willing and organised’ to immediately use the licence applied for and, in many cases, this will mean that staff are expected to be hired and paid a salary, even where there is currently little prospect of a case officer looking at the application for months and, therefore, no prospect of the firm being able to generate any revenue until it is authorised. These allocation pressures are being experienced across regulatory transactions – variations of permission, changes in control, senior manager functions – not just new firm authorisations.

Firm commitments

The FCA has a section on its website where it sets out certain commitments to applicant firms https://www.fca.org.uk/firms/authorisation/how-to-apply aimed at trying to manage firms’ expectations. Given the increased level of scrutiny being applied, the staff shortages and the delays in general, this is somewhere else the FCA is struggling. Among other things, it commits to:

  • Assigning a case officer within 3 weeks or say how long before a case officer will be allocated.

Current status:– this will differ across departments but, currently, the allocation timing delays referred to above means that ‘estimated’ allocation dates are often missed and/orextended

  • Providing a substantive response to a query within 10 working days of receipt, or by when such a response should be expected.

Current status - –the FCA will typically impose a short deadline on the firm for responses, can take 3 weeks or more to respond itself

  • Providing monthly updates on the current status of the application

Current status; – whilst laudable, not something that is practical given the current resource stretch. Indeed, there is little value in regular updates saying there’s nothing to update!

‘Complete’ vs ‘incomplete’

Although the term ‘complete’ is not  defined in legislation, firms can understand this as a combination of both a quantitative and qualitative assessment of the information provided. S.55U (4) of FSMA states An application under this Part must—

(a) be made in such manner as the regulator to which it is to be made may direct, and

(b) contain, or be accompanied by, such other information as that regulator may reasonably require.”

QUANTITATIVE: has the firm provided all of the information that the regulator has requested? The expectation is that all of the information required by the FCA will be contained within the relevant application form.

QUALITATIVE: has the firm provided the level of detail that the regulator is seeking? For example, a firm can submit a business plan, and tick the quantitative box,    but if the business plan is not of sufficient breadth and depth for the regulator, the application will be deemed incomplete, until such time as the necessary detail has been provided. Similarly, we have also seen Wind-down Plans (before a firm has even commenced trading) as being highlighted as lacking sufficient detail and rendering the application incomplete.

S.55U(5) of FSMA states “At any time after the application is received and before it is determined, the appropriate regulator may require the applicant to provide it with such further information as it reasonably considers necessary to enable it to determine the application or, as the case requires, to decide whether to give consent.”

What next..

So far we have looked at the what and the when of an application; in our final article (and our webinar) we will put this together with the ‘how’. What does the FCA mean when it expects applicant firms to be ‘ready, willing and organised’ and what can the applicant expect today in terms if interaction with the FCA?